Issue 276January/February 2013The Tipping Point

Reviews

Debunking the Myth

Economist Stephen Lewis welcomes a deep history of money, markets and debt.
Debt: The First 5,000 Years by David Graeber. Melville House Publishing, 2011. ISBN: 9781933633862.

Perhaps it is not that surprising that it has taken an anthropologist and not an economist or even a historian to write a book as ambitious, sweeping and illuminating as David Graeber’s Debt: The First 5,000 Years.

With a few notable exceptions, economists today seem to suffer from a form of collective historical amnesia regarding how economies actually developed. Sadly, most seem to know very little about the history of economics itself, and in the rare cases where they do look back more than a few decades, economists almost invariably take their cue from Adam Smith, who believed that the basis of economic life is “a certain propensity in human nature ... to truck, barter and exchange one thing for another”.

This view, which is parroted in the introduction to almost all elementary economics textbooks, sees people in early communities as having to rely on bartering with neighbours – swapping shoes for arrows, or wheat for tools. This wasn’t very conducive to the development of markets and trade, because it relied entirely on a “coincidence of wants”.

But what happens if none of my neighbours want my arrows? Can I set out on a long and arduous journey to faraway villages in the hope of finding someone who will want them and who will also have some spare shoes that he is willing to exchange for my arrows? It was the introduction of money, it is said, that got over this problem and allowed markets to develop. Money is seen as a type of useful lubricant for the already existing barter form of exchange. Such things as lending, debt and banking were tacked on later.

The problem with this version of history, says Graeber, is that there is not a shred of evidence to support it. Spanning 5,000 years, starting in Mesopotamia in the 3rd millennium BCE, and ranging across Africa, Asia, the Americas and Europe, he identifies three primary ways in which communities have been organised. These he calls communism (mutuality), hierarchy, and exchange. Of course, most societies have included a bit of all three, but one of the primary aims of the book is to present the abundant historical evidence that demonstrates that in most early societies mutuality involved complex and dynamic webs of mutual obligations and, indeed, debts.

These communities weren’t always peaceful – Graeber doesn’t fall for the myth of the noble savage or primitive communism – but he does exhaustively show that obligations, debts and even elaborate credit systems existed well before the introduction of money as we know it and generally before the rise of markets as well.

It’s not just that economists’ chronology is all wrong, but also that modern money and markets, when they did appear, didn’t develop completely separately from the state – which is the conventional wisdom in economics – but were usually the result of deliberate actions taken by kings and states who wanted to finance their wars. They needed ‘hard’ currency to pay their armies, so they minted coins. But they wanted to get it back as well, so they insisted that people pay taxes in “the currency of the realm”. This had the effect of not only monetising the economy but also encouraging the development of markets. The soldiers used their coins to buy what they needed from the locals, who used the money to pay their taxes.

In terms of debt, it was only when people were violently ripped from “natural economies”, from their context, from their nexus of mutual relationships and obligations – often through conquest and slavery – that all debts become monetised and everything then had a price, including humans. Ever since, debt has been used (and Graeber would, I think, argue is still used) to finance wars, to keep the majority in debt-bondage and to maintain social and economic inequalities. The book gives numerous examples of this – Cortes’ conquest of the Aztecs, and the origins of the Bank of England, to name just two.

A host of other fascinating themes are also covered, including financial bubbles, the origins of banking, the slave trade and many anthropological analyses of diverse historical and contemporary communities. Each one is worth relishing on its own.

Although Graeber’s book does bring us almost up to date, his aim isn’t so much to offer alternatives to the present “Debt Crisis” – he does that elsewhere. He’s more concerned with debunking the myth of how modern economies arose and with trying to show what really drove the history of money, markets and debt, as well as how violence and power were, as ever, of fundamental importance. This he does magnificently.

For me, as an economist and historian, Debt: The First 5,000 Years is perhaps the most insightful book on the subject since Murray Bookchin published The Ecology of Freedom in 1982.

Stephen Lewis is an economist, historian and writer. thewildpeak.wordpress.com